Trade wars rarely have victors. They do, however, sometimes have losers. And Donald Trump has definitely turned out to be a loser.
That’s not the way he and his team are portraying the deal they have struck with China, which they are claiming is a triumph. The reality is that the Trump administration achieved almost none of its goals; it has basically declared victory while going into headlong retreat.
And, trust me, the Chinese know it. Chinese officials are in my opinion “jubilant and even incredulous” at the success of their hard-line negotiating strategy. And now I disclose to you why…
To better understand what just went down, you need to ask what Trump and company were trying to accomplish with their tariffs, and how that compares with what really happened.
First and foremost, Trump wanted to slash the US trade deficit with China. Economists more or less unanimously consider this the wrong objective, but in Trump’s mind countries win when they sell more than they buy, and nobody is going to convince him otherwise.
So it’s in my opinion remarkable to note that the trade deficit has risen, not fallen, on Trump’s watch, from 544 billion US-Dollar in 2016 to 691 billion US-Dollar in the 12 months ending in October. And what Trump wanted in particular was to close the trade deficit in manufactured goods; despite giving lip service to “great Patriot Farmers”, it’s clear that he actually has contempt for agricultural exports. Last summer, complaining about the US trade relationship with Japan, he sneered: “We send them wheat. Wheat! That’s not a good deal.”
So now the US appears to have a trade deal with China whose main element is a promise to buy more US farm goods. Trump’s team also wanted to put the brakes on China’s drive to establish itself as the world’s economic superpower. I know since a long time that China is basically trying “to steal the future” as a surveillance state.
But the new deal leaves in my opinion the core of China’s industrial strategy – what has been called the “vast web of subsidies that has fueled the global rise of many Chinese companies like Huawei” – untouched.
So why did Trump wimp out on trade?
At a broad level, in my opinion the answer is that he was suffering from delusions of grandeur. America was never going to succeed in bullying a huge, proud nation whose economy is already, by some measures, larger – especially while simultaneously alienating other advanced economies that might have joined the US in pressuring China to change some of its economic policies.
At a more granular level, none of the pieces of Trump trade strategy have worked as promised. Although Trump has repeatedly insisted that China is paying his tariffs, the facts say otherwise: Chinese export prices haven’t gone down, which means that the tariffs are failing on US consumers and companies. And the bite on consumers would have gone up substantially if Trump hadn’t called off the round of further tariff increases.
At the same time, Chinese retaliation has hit some US exporters, farmers in particular, hard. And while Trump may quietly hold farm exports in contempt, he needs those rural votes – votes that were being put at risk despite a farm bailout that has already cost more than twice as much as Barack Obama’s bailout of the auto industry.
Finally, uncertainty over tariff policy was clearly hurting manufacturing and business investment, even as overall economic growth remained solid. So Trump, as I said, basically declared victory and retreated. Will Trump’s trade defeat hurt him politically? In my opinion, probably it’s not. Many Americans will surely buy the spin.
Furthermore, voting mostly reflects the economy’s direction, not its level – not whether things are good, but whether they have been getting better recently. It may in my opinion actually be a good political strategy to do stupid things for a while, then, stop doing them around a year before the election, which is a fair summary of Trump’s trade actions.
There will, however, be longer-term costs in my opinion to the trade war.
For one thing, the business uncertainty created by Trump’s capriciousness won’t go away. Beyond that, Trump’s trade antics have damaged America’s reputation badly.
On one side, US allies have learnt not to trust the US – at least under Trump. The US has become the kind of country that suddenly slaps tariffs on Canada – Canada!! – On obviously spurious claims that are protecting US national security.
On the other side, US rivals have learnt not to fear the US. Like the North Koreans, who flattered Trump but kept on building nukes, the Chinese have taken Trump’s measure. They now know that he talks loudly but carries a small stick, and backs down when confronted in ways that might hurt him politically.
These things in my opinion matter. Having a leader who is neither trusted by US erstwhile friends nor feared by US foreign rivals reduces the US global influence in ways we are all just starting to see. Trump’s trade war in my opinion didn’t achieve any of its goals, but did succeed in making “America weak again”.